Tax Credits on College Tuition for Employers
The Internal Revenue Service offers a tax credit to encourage employers to sponsor college programs for their employees. Employers are allowed to deduct all payments for college expenses as a form of compensation. Employees may have to report college benefits from their employer as income, depending on the amount of the benefit and the purpose of the college courses.
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Fringe Benefits
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The Internal Revenue Service considers a range of employer-provided benefits as taxable income. This includes nonmonetary compensation, known as fringe benefits. Common fringe benefits are the use of a company car, employer-paid insurance and discounts on company merchandise. The IRS lists a few tax-free fringe benefits in the tax code. If a fringe benefit is not specifically listed as a tax-free exemption, the benefit is taxable. Taxpayers must include the entire fair-market value of taxable fringe benefits on your income tax return.
College Tuition
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When an employer pays for an employee's college tuition, the payment is a fringe benefit. The employer can directly pay for college expenses or it can reimburse the employee for expenses after he successfully completes a course. An employer may offer this benefit to improve morale and increase the total education of its workforce. Any college expenses that a company pays for is considered college reimbursement. This is usually tuition but also could include the cost of books, registration fees and any supplies needed for your courses.
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Tax Deduction
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An employer is allowed to deduct all payments for college tuition from its income. The IRS considers fringe benefits as employee compensation, so an employer can deduct these payments as expenses. Prior to 2010, all employer-paid college expenses were taxable fringe benefits. The IRS has since allowed a portion of tuition reimbursement to be received tax-free. In 2010, an employee could receive up to $5,250 in college payments from her employer tax-free.
Working Condition Benefit
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If college training is a necessary working condition benefit, an employee can receive more than $5,250 in annual, tax-free payments from his employer. Necessary working-condition training is any education that is necessary to maintain your job-related skills and is required by the company for the employee to continue working at his position. Any working-condition benefit is tax-free; there is no maximum limit. These college expenses must be for the maintenance of a current job. Any courses taken for advancement into another job do not fall under this category.
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